The Financial Conduct Authority’s (FCA’s) Consumer Duty
officially came into action over a year ago, with an implementation deadline of
31st July 2023 for all new and existing products and services.
The regulator favored a phased approach, with different
obligations landing at different stages throughout the adaptation. This
concluded in July 2024, the deadline for closed products and services, and also
for firms’ first annual reports on complying with the new regulations.
The one-year anniversary is an appropriate milestone to
assess the Duty’s impact so far, how well it has fulfilled its objectives, and
how we’re likely to see it evolve.
Duty calls
In 2022, the FCA shared a document setting out its overarching strategy for the next three years. The Consumer Duty was labeled ‘the cornerstone’, built to modernize the British financial sector and regulatory system and strengthen the attractiveness of UK capital markets post-Brexit .
Amid a cost-of-living crisis and a post-pandemic rise in e-commerce, consumer protection found itself at the top of the agenda.
That overarching premise was broken down into four target
areas: products and services, price and value, consumer understanding, and consumer support. In the run-up to its introduction, there was much confusion around the Duty, including who it applied to, what actions needed to be taken,
and how progress and adherence would be measured.
A Work in Progress
The first milestone of Consumer Duty was on the first
day of its implementation. The FCA asserted its authority straight away, taking steps
to ensure consumers benefited from higher interest rates in the savings market.
This immediately demonstrated that the regulator meant business and was
fighting to help consumers wherever possible.
The FCA released data in February 2023 showing that 43% of the firms surveyed had no difficulty implementing the duty. While this is framed as a positive, it does show that the majority had encountered some issues.
The regulator promptly shared guidelines on what firms were
doing well and what could be improved. The guidelines contained six segments comprised of the four target areas, as well as sections on culture, governance, monitoring, and consumers in vulnerable circumstances.
It provided immensely detailed
overviews for each of these six sections, and while most of the feedback
provided on firms’ activity so far is positive, it also provides a great deal
of direction for those having difficulty.
This level of analysis, positive reinforcement, and prescriptive guidelines, as well as the speed of its turnaround, suggests that the FCA is committed to delivering a successful Consumer Duty and has acknowledged that it’s a constant work in progress.
FCA’s Perspective
On July 31st, 2024, Sheldon Mills, FCA executive director of
consumers and competition, gave a speech assessing the impact of the Duty a
year after its introduction. He reiterates what we have surmised above, albeit
providing the kind of positive assessment that you would probably expect from
one of the champions of the new rules under scrutiny.
“The duty is already having a tangible impact on consumer
outcomes. And it has been driving improvements in firm culture, conduct, and governance, too, which, over time, will still drive better outcomes.”
“Some firms have changed their employee bonus structures to
make sure that incentives are right, and employees only get good outcomes when
their customers do.
“We are also seeing firms being more proactive with their
communications, contacting customers to provide information on what better
products may be available, and monitoring the impact so they can learn and
improve. And many are rewriting those communications to make them simpler and
easy to understand.”
The language is vague and non-committal, with no real
examples shared of the successes being discussed, but instead ‘some’ and ‘many’
firms. While this could simply be a case of Mills not deeming it necessary to
qualify every statement, it does feel vague and suggests that the Duty’s impact
so far may have been underwhelming or unproven, at least in terms of the data
available.
Negative Feedback
Despite the FCA’s assertions, feedback from elsewhere
suggests there’s still much room for improvement. A year after the Duty was introduced, Abby Thomas, chief
executive of the Financial Ombudsman Service, said poor administration and
customer service continue to be the biggest areas of complaint.
“We now regularly receive complaints about things that have
happened since the Duty’s been in force… Overall, poor administration and
customer service continue to be among the biggest areas of complaint. This
could be about poor service, lack of timely support, or broken promises,”
According to research from Moneyhub, an engagement, data, and
customer journey platform, 41% of
customers have not noticed any changes to their treatment since the regulations
came into effect. The research, which polled 2,000 UK consumers, found that
just 22% had noticed any positive changes.
The End of the Beginning
Despite some negativity about its impact so far, many customers
believe that Consumer Duty will significantly affect how firms interact
with them. 40% believe it will improve customer service, rising to 48% of
younger respondents.
Above all else, firms will now need to evidence their actions to improve consumer outcomes with hard data. Firms have delivered their first annual Consumer Duty board report, showing that they have met the duty’s requirements and are also making
progress on delivering good outcomes for their customers.
The FCA is
increasingly data-driven and wants the companies under its jurisdiction to
commit to constant evolution and improvement. That means tangible facts and
figures and demonstrable upgrades, year on year.
At the Consumer Duty: One Year On event, Sheldon Mills
continued, “UK financial services are not in need of a resurrection. We are
rightfully proud to have one of the most dynamic, capable, and innovative
financial services industries in the world.
“But today does mark something of a new start. A year ago,
the Duty came into force for open products and services. Today, it comes into
force for closed products and services. You’ve heard this from us before, but
the Consumer Duty was never going to be a once-and-done act. It is an ongoing
journey for improvement that we’re on together.
“We know we have more to do. This is not the beginning of
the end for all of our efforts to implement the Consumer Duty, but the end of
the beginning.”
There’s a long way to go, but that troublesome first hurdle
has been cleared. The FCA has bet the house on this initiative and, as demonstrated by the level of detail in its feedback so far, is doing everything in its power to ensure it continues improving. After all, that’s what it
expects of the firms it regulates, who must find the right tools to demonstrate
improved consumer outcomes.
The Financial Conduct Authority’s (FCA’s) Consumer Duty
officially came into action over a year ago, with an implementation deadline of
31st July 2023 for all new and existing products and services.
The regulator favored a phased approach, with different
obligations landing at different stages throughout the adaptation. This
concluded in July 2024, the deadline for closed products and services, and also
for firms’ first annual reports on complying with the new regulations.
The one-year anniversary is an appropriate milestone to
assess the Duty’s impact so far, how well it has fulfilled its objectives, and
how we’re likely to see it evolve.
Duty calls
In 2022, the FCA shared a document setting out its overarching strategy for the next three years. The Consumer Duty was labeled ‘the cornerstone’, built to modernize the British financial sector and regulatory system and strengthen the attractiveness of UK capital markets post-Brexit .
Amid a cost-of-living crisis and a post-pandemic rise in e-commerce, consumer protection found itself at the top of the agenda.
That overarching premise was broken down into four target
areas: products and services, price and value, consumer understanding, and consumer support. In the run-up to its introduction, there was much confusion around the Duty, including who it applied to, what actions needed to be taken,
and how progress and adherence would be measured.
A Work in Progress
The first milestone of Consumer Duty was on the first
day of its implementation. The FCA asserted its authority straight away, taking steps
to ensure consumers benefited from higher interest rates in the savings market.
This immediately demonstrated that the regulator meant business and was
fighting to help consumers wherever possible.
The FCA released data in February 2023 showing that 43% of the firms surveyed had no difficulty implementing the duty. While this is framed as a positive, it does show that the majority had encountered some issues.
The regulator promptly shared guidelines on what firms were
doing well and what could be improved. The guidelines contained six segments comprised of the four target areas, as well as sections on culture, governance, monitoring, and consumers in vulnerable circumstances.
It provided immensely detailed
overviews for each of these six sections, and while most of the feedback
provided on firms’ activity so far is positive, it also provides a great deal
of direction for those having difficulty.
This level of analysis, positive reinforcement, and prescriptive guidelines, as well as the speed of its turnaround, suggests that the FCA is committed to delivering a successful Consumer Duty and has acknowledged that it’s a constant work in progress.
FCA’s Perspective
On July 31st, 2024, Sheldon Mills, FCA executive director of
consumers and competition, gave a speech assessing the impact of the Duty a
year after its introduction. He reiterates what we have surmised above, albeit
providing the kind of positive assessment that you would probably expect from
one of the champions of the new rules under scrutiny.
“The duty is already having a tangible impact on consumer
outcomes. And it has been driving improvements in firm culture, conduct, and governance, too, which, over time, will still drive better outcomes.”
“Some firms have changed their employee bonus structures to
make sure that incentives are right, and employees only get good outcomes when
their customers do.
“We are also seeing firms being more proactive with their
communications, contacting customers to provide information on what better
products may be available, and monitoring the impact so they can learn and
improve. And many are rewriting those communications to make them simpler and
easy to understand.”
The language is vague and non-committal, with no real
examples shared of the successes being discussed, but instead ‘some’ and ‘many’
firms. While this could simply be a case of Mills not deeming it necessary to
qualify every statement, it does feel vague and suggests that the Duty’s impact
so far may have been underwhelming or unproven, at least in terms of the data
available.
Negative Feedback
Despite the FCA’s assertions, feedback from elsewhere
suggests there’s still much room for improvement. A year after the Duty was introduced, Abby Thomas, chief
executive of the Financial Ombudsman Service, said poor administration and
customer service continue to be the biggest areas of complaint.
“We now regularly receive complaints about things that have
happened since the Duty’s been in force… Overall, poor administration and
customer service continue to be among the biggest areas of complaint. This
could be about poor service, lack of timely support, or broken promises,”
According to research from Moneyhub, an engagement, data, and
customer journey platform, 41% of
customers have not noticed any changes to their treatment since the regulations
came into effect. The research, which polled 2,000 UK consumers, found that
just 22% had noticed any positive changes.
The End of the Beginning
Despite some negativity about its impact so far, many customers
believe that Consumer Duty will significantly affect how firms interact
with them. 40% believe it will improve customer service, rising to 48% of
younger respondents.
Above all else, firms will now need to evidence their actions to improve consumer outcomes with hard data. Firms have delivered their first annual Consumer Duty board report, showing that they have met the duty’s requirements and are also making
progress on delivering good outcomes for their customers.
The FCA is
increasingly data-driven and wants the companies under its jurisdiction to
commit to constant evolution and improvement. That means tangible facts and
figures and demonstrable upgrades, year on year.
At the Consumer Duty: One Year On event, Sheldon Mills
continued, “UK financial services are not in need of a resurrection. We are
rightfully proud to have one of the most dynamic, capable, and innovative
financial services industries in the world.
“But today does mark something of a new start. A year ago,
the Duty came into force for open products and services. Today, it comes into
force for closed products and services. You’ve heard this from us before, but
the Consumer Duty was never going to be a once-and-done act. It is an ongoing
journey for improvement that we’re on together.
“We know we have more to do. This is not the beginning of
the end for all of our efforts to implement the Consumer Duty, but the end of
the beginning.”
There’s a long way to go, but that troublesome first hurdle
has been cleared. The FCA has bet the house on this initiative and, as demonstrated by the level of detail in its feedback so far, is doing everything in its power to ensure it continues improving. After all, that’s what it
expects of the firms it regulates, who must find the right tools to demonstrate
improved consumer outcomes.
This post is originally published on FINANCEMAGNATES.
